The Zhitong Finance App learned that CMB International released a research report stating that it maintained the Hongteng Precision (06088) “buy” rating and slightly raised the FY24-25EPS forecast by 4%-9% to reflect strong FY24 business and profit margin expansion expectations. The target price was raised to HK$2.21, and the valuation is still very attractive.

CMB International's main views are as follows:

The company's FY23 performance was in line with previous guidelines, while the FY24 outlook exceeded market expectations.

The company's FY23 revenue fell 7% year on year to US$4.196 billion, and net profit fell 24% year on year to US$130 million. Revenue performance was affected by headwinds in the traditional server and PC market and continued adjustments in the Internet connectivity business portfolio, but was strongly supported by Voltaira's automotive electronics business consolidation in the second half of the year. The annual gross margin reached 19.2%, a significant increase compared to FY22's gross profit margin of 16.9%. It mainly benefited from a more optimized product portfolio and the successful promotion of the “3+3 Strategy”. In terms of the FY24 outlook, the company's annual revenue and gross profit are expected to achieve double-digit year-on-year growth, gross margin will trend to 20%, operating expenses are expected to be effectively controlled, and the overall guidance exceeds market expectations.

This year, the company's multiple product lines ushered in new product launches and business breakthroughs:

1) Shipments of high-speed connector products used in the network connectivity business sector, including AI servers, will increase significantly, and the company has formed business collaboration with Hon Hai companies to enter the supply chain of leading customers. 2) In the EV business division, Voltaira's automotive electronics business is still expected to bring three-digit year-on-year growth this year, forming a collaboration with the original company's EV business and entering the European and American tier-1 customer supply system. 3) In the system-level machine business division, Airpods products produced by the company for Apple will be shipped and delivered on 3Q24. Currently, production has begun one after another at the company's overseas factories in Vietnam and India. Overall, in 2024, the company showed various growth momentum, the product portfolio continued to be optimized, and the Internet connectivity business division's product portfolio adjustments were nearing completion. The bank is optimistic that the company will achieve an increase in revenue and continue to expand profit margins in 2024.